Some expected bloodbath on the streets of Islamabad yesterday as the Long March gained strength, but luckily, it wasn to be. The bloodbath was rather witnessed at the Karachi Stock Exchange, which saw its benchmark KSE-100 index fall by a massive 525 points, soon after the Prime Ministers arrest order news broke.
The 525 points drop sits on number seven amongst the largest single day losses in absolute terms in the previous 13-year history of the local bourse. It is also the third largest single day drop in the current governments tenure, the previous ones being largely based on economic fundamentals of massive hike in interest rates back in May 2008.
The KSE-100 index after having reached the all-time high of 16,943 points as recently as December 28, 2012, has refused to go further north. The first two weeks of the New Year have witnessed the KSE-100 index dropping by 4.7 percent already. The stock fundamentals do not seem to have changed drastically, hence the uy calls from most brokerage houses.
What has dramatically changed however is the political landscape, which is why the panic button has been pressed at the KSE. It is pertinent to note that the market had absorbed the previous such situation, when the ex-PM Gilani was ousted from his office. The benchmark index lost only 71 points back then, but the current situation at hand appears more worrisome, as the future of general elections and the law and order situation appear unclear.
Market experts opine that the current situation might bring the valuations down, solely based on an increased risk premium, a key input in the stock valuation. Unlike the previous massive falls of yesteryears, like the aftermath of Benazir Bhutto assassination and the November 2007 Emergency, the current situation promises to linger on a little longer as more players are jumping in.
Besides the fate of the Long March, there is a real threat of another round of massive street protests pretty soon, as Imran Khans Pakistan Tehrik-e-Insaf, yesterday signalled its intentions. Should that happen, the investors confidence is bound to take a hit, as it will add to the complexity of the situation, which is for the moment currently revolving around a single player.
The KSE-100 index delivered an outstanding yearly return of almost 50 percent in 2012. But the five-year return of the benchmark index comes at a modest 8.7 percent, which when accounted for inflation, gives a negative return for long-term holders. From what it appears, the bulls may have to wait for their return to the bourses, till the general elections are announced or/and the protests end.
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KSE-100 index largest single-day drops
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Date chg Event
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01/02/2008 (723.78) Benazir Bhutto Assassinated
12/31/2007 (694.92) Benazir Bhutto Assassinated
11/05/2007 (635.44) Pervez Musharraf declares Emergency
05/23/2008 (615.26) Interest rate increased by 150 bps
05/28/2008 (567.28) Interest rate increased by 150 bps
06/14/2006 (546.13) SECP probe at KSE
01/15/2013 (525.29) SC issues PMs arrest orders
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